Capital Movement, Should You Restrict It?

You’re a member of a large industrial union. Your employer has a large project in the works, which will involve a new plant, new employees, and a lot of new revenue. However, you have previously priced yourself out of the market in negotiations. Now, the company is planning on building the plant on foreign soil, where productivity is probably close to parity, but the unit cost of labor is much cheaper. What do you do?

Well, you petition the government to restrict the flow of capital across borders. That’s what. Who is this evil corporation, and who are these nefarious foreigners stealing our jobs?! Boeing, and South Carolina.

In 2009 Boeing announced plans to build a new plant to meet demand for its new 787 Dreamliner. Though its union contract didn’t require it, Boeing executives negotiated with the International Association of Machinists and Aerospace Workers to build the plane at its existing plant in Washington state. The talks broke down because the union wanted, among other things, a seat on Boeing’s board and a promise that Boeing would build all future airplanes in Puget Sound.

So Boeing management did what it judged to be best for its shareholders and customers and looked elsewhere. In October 2009, the company settled on South Carolina, which, like the 21 other right-to-work states, has friendlier labor laws than Washington. As Boeing chief Jim McNerney noted on a conference call at the time, the company couldn’t have “strikes happening every three to four years.” The union has shut down Boeing’s commercial aircraft production line four times since 1989, and a 58-day strike in 2008 cost the company $1.8 billion.

The NLRB has obliged union requests to halt Boeing’s production of the plant while the decision is under investigation for “anti-union animus”. I tweeted that this was blatant union over-reach, and it is! Now, I’m on the record somewhere on the internet making the claim that if you support free markets, you should naturally support unions. That is very counter-intuitive, but the fact is that unions would be much more prevalent in almost every aspect of life in a totally free market. In Max Barry’s book, Jennifer Government, which is a story about a corporatist dystopia, the plot-line revolves around two consumers unions, US Alliance and Team Advantage. Unions would simply be a market-oriented way of organizing against monopolistic competition — and maybe not be the most efficient.

However, while I don’t begrudge the right for unions to form and attempt to bargain, I also don’t begrudge the right of management the say, “FU, we’re going somewhere else”. In an ideal world, they would do this free of government playing for either side. But in this case, we have the government contemplating restricting capital flows between states! The United States, as understood properly, is the largest free trade area in the world. That has been a huge comparative advantage for the US historically, and arguably the reason that we are at the top of the world economic pyramid today. Restricting the flow of capital makes us poorer by reducing productive employment, and increasing prices. It’s a very poor precedent to set.

P.S. I do have to hand it to labor, though…they certainly don’t seem to be afraid of taking their protectionism to its logical conclusion.

6 comments

[…] This seems crazy. Boeing does not seem to have claimed that it was trying to break the union; it said it was moving to seek a more amenable labor force. As far as I know, that’s not against the law, even if unions wish it were. Companies have been moving south for decades to get a better tax and labor environment. For the NLRB to declare that companies have no right to move would be tantamount to declaring that they are legally captive to whatever the local unions and governments care to dole out. And to do so based on a chance remark at a conference call seems particularly insane. Niklas Blanchard has more. […]